Grocery Retailing – Positive Steps, But Not Transformative

Westpac’s NZ Industry Economist Paul Clark says that the current cost of living crisis and growing concerns over food prices have brought last year’s Commerce Commissions’ recommendation for reforming the grocery sector back into focus.

A Westpac NZ Economics report released today examines whether the reforms currently being implemented will generate sufficient competition to deliver significant benefits for consumers.

“Our view is that this is unlikely, mainly because they do not address the power imbalances that exist along the grocery value chain,” says Mr Clark, who authored the report.

“On balance, we think that stronger measures would be needed to achieve these outcomes, including breaking up the existing duopoly that currently dominates the sector.”

“This would involve some tough policy trade-offs, including potentially higher prices in the short term as economies of scale were lost. Longer-term, however, we would expect the benefits of a more level competitive playing field to be reflected in better prices, a wider range of goods and an improved customer experience.”

“We also think any reforms that improve competition would be helpful in improving the responsiveness of grocery prices to changes in consumer demand and aid the transmission of the Reserve Bank’s monetary policy to the benefit of the entire economy.”

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